Theme 1
Structure and Performance of the UK Economy
Policy questions and key messages
- How has the structure of the UK economy changed in the last two decades?
- What is the value of UK manufacturing?
- What are the top UK manufacturing industries?
Despite the decline in manufacturing as a share of GDP over the past two decades, the sector remains a key contributor to the economy:
- Over the past two decades, one of the most significant changes in the structure of the UK economy has been the decline in the share of manufacturing value added, from 14.8% in 2000 to 9.1% in 2023. In contrast, activities that increased their participation in the UK economy included: human health and social work; professional, scientific and technical activities; and financial and insurance activities.
- Despite the decline in manufacturing value added as a percentage of GDP, it remains the second-largest market sector by value added, the largest contributor to capital investment, the second in labour productivity growth, and the seventh-largest sector by employment.
We estimate that the manufacturing value chain accounts for around 15% of the UK economy:
- Manufacturing is a key pillar of the UK economy, accounting for 9.1% of the value added and 7.2% of the employment in 2023. In particular, advanced manufacturing sectors account for around half of the sector’s value added and employment, showing above-average productivity levels.
- The wider impact of manufacturing can be measured through its interconnectedness with other industries. Using a value-chain approach, we estimate that manufacturing contributed £331 billion to the economy in 2022 and supported 4.5 million full-time equivalent jobs in 2019. These figures represent approximately 15% of UK value added and employment during the respective reference years.
Key UK manufacturing industries include food products, transport equipment, machinery and equipment, fabricated metals and pharmaceuticals:
- Food products is the largest manufacturing employer, contributes the highest share of value added, and has the second-largest capital investment among manufacturing industries. However, it is more domestically oriented, accounting for just 4.2% of manufacturing goods exports in 2023.
- In comparison, motor vehicles, other transport equipment, machinery and equipment, and fabricated metals are more export-oriented, jointly accounting for nearly half of manufacturing exports, while also making substantial contributions to value added and employment.
- The pharmaceutical industry stands out for its high value added, relatively large services exports, and the highest capital investment among manufacturing industries.
Structure of the UK economy, 2023
- In 2023 knowledge-intensive [1] and labour-intensive services [1] contributed to approximately 80% of the UK economy’s gross value added and employment.
- Medium/high-tech manufacturing [1] represented the largest share of goods exports and the second largest share of R&D performed in UK businesses (BERD). It amounted to 59.1% of goods exports and 43.9% of BERD in 2023.
- Knowledge-intensive services accounted for the largest shares of services exports (65.7%) and BERD (43.9%). The main service exports include: business services; financial services; and telecommunications, computer and information services.
[1] Note: Appendix 1.1 presents definitions of these sector classifications.
Top 10 industries by value added and capital investment
- At the industry level (sections of the UK Standard Industrial Classification), the top contributing industries to UK value added in 2023 include: wholesale and retail trade (9.9%), manufacturing (9.1%), financial and insurance activities (8.8%), human health and social work (8.5%) and professional, scientific and technical activities (8.3%).
- Over the past two decades, industries that increased their share of value added include: human health and social work, rising from 5.5% in 2000 to 8.5% in 2023; professional, scientific and technical activities, going from 5.8% to 8.3%; and financial and insurance activities, increasing from 6.6% to 8.8%.
- In contrast, manufacturing declined from 14.8% in 2000 to 9.1% in 2023, while wholesale and retail trade fell from 11.7% to 9.9%.
- In terms of capital investment, manufacturing (9.2%), construction (8.9%), education (6.9%), public administration and defence (5.6%) and information and communication (4.7%) accounted for the largest shares in 2023.
- Over the past two decades, however, information and communication saw the biggest decline in capital investment, with its share dropping from 10% in 2000 to 4.7% in 2023, while construction increased from 4.5% to 8.9%.
Top 10 industries by labour productivity
- Industries with the highest labour productivity levels in 2023 include: mining and quarrying (£682,519 per job); electricity, gas, steam and air conditioning supply (£207,245); financial and insurance activities (£173,938); water supply (£106,652); and information and communication (£84,010).
- Between 2000 and 2023, the industries that saw the fastest productivity growth include: information and communication (6.7% annually), manufacturing (3.0%) and financial and insurance activities (1.4%).
Top 10 industries by employment and salary
The top contributing industries in terms of employment in 2023 include: human health and social work (13.3%); wholesale and retail trade (13.1%); professional, scientific and technical activities (9.4%); administrative and support services (8.5%); and education (8.4%).
- In line with the trend in value-added shares, industries that have seen an increase in employment shares over the past decade include: professional, scientific and technical activities (rising from 6.1% in 2000 to 9.4% in 2023); human health and social work activities (from 10.3% to 13.3%); and administrative and support service activities (from 7.2% to 8.5%).
- The largest employing sectors in the UK have some of the lowest salaries. Sectors such as human health, wholesale and retail trade and administrative and support services collectively employ more than a third of UK workers; yet their salaries fall below the whole-economy median, which was £29,511 in 2023.
- In comparison, top employing sectors that pay above the whole-economy median salary include professional, scientific and technical activities, manufacturing, construction, transportation and storage and information and communication.
The value of the UK manufacturing supply chain
- Manufacturing is a key pillar of the UK economy, accounting for 9.1% of the value added and 7.2% of the employment in 2023.
- Manufacturing is a driving force for innovation and trade. In 2023 it represented 89% of goods exports and 48% of business expenditure on research and development (BERD).
- The wider impact of manufacturing can be seen in its interconnectedness with other industries. Manufacturers’ purchases from various sectors generate significant indirect economic and employment effects.
- Following this supply chain approach, we find that manufacturing contributed £331 billion to the economy in 2022 and supported 4.5 million full-time equivalent jobs in 2019.[1] These figures represent approximately 15% of UK value added and employment during the respective reference years.
- The largest indirect impact of manufacturing in value added and employment is seen in distribution and logistics, business services, and materials and infrastructure.
[1] Note: The most recent ONS data on employment multipliers is from 2020. However, due to the impact of the COVID-19 pandemic, 2019 data offers a more accurate reflection of the UK economy.
Top manufacturing industries by value added and employment, 2023
Leading manufacturing industries, based on their contributions to value added and employment, include:
- Top five manufacturing industries by value added in 2023 (share of manufacturing value added in brackets): food products (12.2%), basic pharmaceutical products (9.3%), motor vehicles, trailers and semi-trailers (9.0%), fabricated metal products (8.9%) and machinery and equipment (7.9%).
- Top five manufacturing industries by employment in 2023 (share of manufacturing employment in brackets): food products (19.4%), fabricated metal products (13.7%), machinery and equipment (8.3%), rubber and plastic products (7.2%) and repair and installation of machinery and equipment (6.8%).
- Food products, motor vehicles, fabricated metal products and machinery and equipment stand out for their large contributions to both value added and employment. In contrast, the manufacture of pharmaceutical products generates high value added but contributes less to manufacturing employment (2.3%).
Top manufacturing industries by goods and services exports, 2023
- Manufacturing contributes to around 89% of goods exports and 4.9% of service exports. Leading manufacturing industries by their exports of goods in 2023 include (share of manufacturing exports in brackets): motor vehicles, trailers and semi-trailers (13%), other transport equipment (13%), machinery and equipment (11.5%), basic metals (9.9%) and chemicals and chemical products (9.2%).
- Manufacture of basic pharmaceutical products stands out for its relatively large service exports, accounting for 28.7% of total manufacturing service exports in 2022.
- While the manufacture of food products is the largest employer in manufacturing and has the highest share of value added, it makes a smaller contribution to manufacturing exports (4.2%).
- In comparison, motor vehicles, other transport equipment, machinery and equipment and fabricated metal products make substantial contributions to value added, employment and exports.
Top manufacturing industries by capital investment, 2023
- Leading manufacturing industries, based on their contributions to capital investment in 2023, include (share of manufacturing capital investment in brackets): pharmaceutical products (14.6%); food products, beverages and tobacco (12%); and computer, electric and optical products (4.5%).
- The nature of investment varies across industries. In 2023 the pharmaceutical and computer and electronics industries primarily invested in research and development, whereas expenditure on “other machinery and equipment” was the main investment in food products, beverages and tobacco, and coke and refined petroleum products.
Overview of advanced manufacturing sectors
- We use three indicators – innovation, worker qualification and R&D intensity – to identify advanced manufacturing sectors (see Appendix 1.3–1.4).
- Using this approach, the manufacturing sectors (at two-digit SIC codes) considered to be advanced manufacturing in the UK are:
- 11: Manufacture of beverages
- 19: Manufacture of coke and refined petroleum products
- 20: Manufacture of chemicals and chemical products
- 21: Manufacture of basic pharmaceutical products and pharmaceutical preparations
- 25: Manufacture of fabricated metal products, except machinery and equipment
- 26: Manufacture of computer, electronic and optical products
- 27: Manufacture of electrical equipment
- 28: Manufacture of machinery and equipment, not elsewhere classified
- 29: Manufacture of motor vehicles, trailers and semi-trailers
- 30: Manufacture of other transport equipment
- In 2023 the aggregate of these industries represented 58.4% of UK manufacturing value added and 5.3% of total UK value added.
- In terms of employment, it represented 46.1% of UK manufacturing employment and 3.3% of total UK
- Finally, advanced manufacturing sectors have significantly higher labour productivity than the rest of UK manufacturing and the UK economy.
Trends of advanced manufacturing sectors
- From 2000 to 2023, the trajectory of both advanced and non-advanced manufacturing sectors was one of modest growth, with a 1.1% compound annual growth rate (CAGR) for both groups of sector.
- Advanced manufacturing sectors’ value-added performance during the 2008–9 crisis was different from the rest of manufacturing. The advanced manufacturing sectors suffered a sharp decline in 2009 and started recovering from 2010 onwards. The non-advanced manufacturing sectors, in turn, had a more gradual but longer-lasting reduction in activity, facing reductions in 2009, 2010 and 2011, only starting to recover in 2012.
- The advanced manufacturing sectors again suffered a sharper decline during the COVID-19 pandemic than the non-advanced manufacturing sectors.
- In terms of employment, the advanced and non-advanced manufacturing sectors saw similar trends. A sharp decline in employment was observed from 2000 to 2010, and since then employment levels have been relatively stable.
- The similarity of this performance across advanced and non-advanced manufacturing sectors means it is likely that structural issues, such as infrastructure, skills and costs, are affecting the UK manufacturing sector as a whole.
Appendix 1.1: Sector classification and statistical codes
Appendix 1.2. Methodology used to compute the indirect and direct value of manufacturing
Appendix 1.3. Methodology used to identify advanced manufacturing sectors
